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FSA to blame failures in RBS investment banking arm for 2008 crisis

The aggressive expansion of Royal Bank of Scotland’s investment banking arm in the years leading up to the 2008 financial crisis, as well as other fundamental factors, contributed to the lender’s near-collapse three years ago, a report to be published on Monday by the Financial Services Authority will say.

The nearly 490-page-long report is expected to highlight several issues at the RBS unit, then led by Johnny Cameron, which had undertaken an ambitious diversification push into esoteric areas such as structured credit in the US.

The City watchdog will also take a swipe at "bad decisions" concerning RBS’ ill-fated 2007 takeover of ABN Amro in partnership with Santander and Fortis, and is likely to call for increased regulatory powers to sanction bank executives in the event of a collapse.

However, Cameron is believed to have told friends that the move to expand RBS’ investment bank was a strategy outlined by the whole board, and not him alone, adding that he had been "lukewarm" in his endorsement of the ABN deal.

In its report into the events that precipitated a £45bn taxpayer bailout of RBS, the FSA will partially blame the “light-touch” UK regulatory regime enacted by the UK’s former labour government for authorities’ failure to identify the build-up of risks at the bank.

The FSA will also slam the conduct of RBS’ erstwhile senior management, led by ex-chief executive Sir Fred Goodwin, and Cameron, who has been formally disciplined by the regulator.

In order to avert a repeat bank failure, the report will outline a string of recommendations including the granting of new powers to watchdogs to intervene in hostile takeover bids.

Comment: Through a series of monumental cock-ups, Goodwin ran RBS into the ground with the full approval of his shareholders and a willing board, with every ill-judged decision carefully minuted. Despite his failings, however, Goodwin was not a crook. His flaw was hubris. Arrogance and ambition clouded his judgment.